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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple car Playing and Broyd Auto with the

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Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Let's get a preview here of what we may here

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Speaker 2: from this ft of reserve, this affternoon. Dennis Lockhart is

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Speaker 2: a former Atlanta Fed president, joining us from Atlanta, Georgia

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Speaker 2: via that zoom thing. Dennis, thanks so much for joining

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Speaker 2: us here. I guess the market's looking for a twenty

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Speaker 2: five basis point cut today.

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Speaker 3: A do you think that's what we'll get? And be

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Speaker 3: what kind of.

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Speaker 2: Message you think Jay Powell wants to get across today.

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Speaker 4: Well, I think it's almost a certainty that we'll get

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Speaker 4: twenty five base points today. It would be a big

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Speaker 4: surprise to everyone, so I put that aside. I don't

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Speaker 4: think it's a question. The message coming out of this

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Speaker 4: meeting will certainly describe the economy as strong, with the

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Speaker 4: labor market cooling but not abruptly cooling, inflation coming down.

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Speaker 4: I think you'll hear more of the same basic message

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Speaker 4: that Powell has put out at previous press conferences, so

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Speaker 4: it's sort of a steady as she goes. He'll explain

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Speaker 4: that the committee believes that they can continue to cut

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Speaker 4: rates through twenty twenty five, and he's not going to

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Speaker 4: make much noise about the election. I don't think he'll

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Speaker 4: say anything that suggests any reaction to it at all.

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Speaker 4: In the short term, at least, the election won't have

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Speaker 4: much influence.

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Speaker 5: We don't know yet the impact on the economy of

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Speaker 5: the new president's policies. Does that call for smaller rate

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Speaker 5: increases in the future, or even applause until we get

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Speaker 5: more clarity.

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Speaker 4: Well, I wouldn't surprise me if they consider a skip,

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Speaker 4: not necessarily a pause of putting a policy path on hold,

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Speaker 4: but just the slowing of the process as early as January.

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Speaker 4: I really don't expect that in December, although I would

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Speaker 4: point out that in the September Summary of Economic Projections

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Speaker 4: there were seven people who were looking to only seventy

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Speaker 4: five basis points this year in twenty twenty four. That's

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Speaker 4: a constituency for skipping in December if they continue to

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Speaker 4: hold those views. So I think a skip in the

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Speaker 4: one of the next two meetings, but more likely in

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Speaker 4: January would allow them to take stock of what policies

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Speaker 4: are likely to actually be implemented and rangers that they

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Speaker 4: have in the outlook because of.

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Speaker 2: That pretty big political event earlier this week. Dennis, how

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Speaker 2: should the Federal Reserve, if at all, address it today?

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Speaker 4: I don't think they should address it at all today.

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Speaker 4: The formulation of monetary policy is not a political or

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Speaker 4: politically influenced policy setting process. And you know, it's not

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Speaker 4: as if he can ignore a question from the audience

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Speaker 4: that brings it up. But I think what you'll find

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Speaker 4: is power will stay very removed from anything that suggests

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Speaker 4: a reaction to political events.

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Speaker 5: Does the FED, oh of the markets, any guidance.

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Speaker 4: The you know, the Fed, does it Fed oh the

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Speaker 4: markets guidance? I think the Fed has been giving guidance

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Speaker 4: that the direction of travel is in the direction of

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Speaker 4: lower policy rates settings. They have to be indetermined as

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Speaker 4: to where that will end. They just don't know. That

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Speaker 4: depends a good deal on how the economy evolves over

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Speaker 4: the coming months and next year or so. So I

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Speaker 4: think guidance has been given. I doubt that you'll hear

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Speaker 4: much in the way of amplification of that or elaboration

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Speaker 4: on that. In this meeting, the direction is to a

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Speaker 4: lower overall rate setting.

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Speaker 2: Dennis, again, the FED cut race by fifty basis points,

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Speaker 2: and as you just mentioned, there's the bias towards more

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Speaker 2: rate cuts, yet yields to move sharply higher.

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Speaker 3: Is that what's going on there for the average investor?

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Speaker 4: I think there are a number of factors at work,

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Speaker 4: but probably the one that deserves the most tension is

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Speaker 4: the markets increasing their discount or pricing in some concern

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Speaker 4: about the fiscal outlook both candidates. Basically, we're likely to

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Speaker 4: be sustaining or even increasing deficits, and the proposals that

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Speaker 4: are out there from Trump's campaign appear to be net

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Speaker 4: inflation era and conceivably net fiscal fiscally unchanged in many respects,

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Speaker 4: if not worse. So I think what the markets are

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Speaker 4: seeing is that the fiscal outlook coming to grips with

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Speaker 4: the reality of deficits in the rising debt as of

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Speaker 4: now at least don't appear to be a priority, and

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Speaker 4: they're pricing that into the longer term rates.

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Speaker 5: WELLY ask you what you think the relationship should be

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Speaker 5: between the President of the United States and the head

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Speaker 5: of the Federal Reserve.

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Speaker 4: President of the United States should stay out of trying

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Speaker 4: to influence the FED in the direction of monetary policy.

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Speaker 4: The FED should operate independently. I happen to have pretty

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Speaker 4: strong feelings about this. I think it's globally a fundamental

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Speaker 4: of good governance to allow your central bank to make

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Speaker 4: its decisions independently, and the influence is simply in the

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Speaker 4: nominations that the President makes for the Board of Governors

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Speaker 4: and the chair, and after that, I think the setting

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Speaker 4: up policy should be done independently with no interaction with

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Speaker 4: the president.

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Speaker 2: Dennis, do you think what's the risk here if you're

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Speaker 2: the Federal Reserve? Is it inflation coming back? Is it

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Speaker 2: the economy tilting into a recession? Where do you think

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Speaker 2: the FED is kind of folk here on that balance?

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Speaker 4: Well, I think they're focused on two things. Of course,

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Speaker 4: as everyone knows, there's a dual mandate, so they have

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Speaker 4: to pay attention to both employment and inflation. A stickiness

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Speaker 4: of inflation at current levels, possibly a resurgence which could

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Speaker 4: be based on some policy decisions that are made in

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Speaker 4: the Trump administration. So that is a concern and a

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Speaker 4: cracking of the good situation we have in employment markets today.

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Speaker 4: I pay attention to initial claims. If you saw initial

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Speaker 4: claims shoot up, it would suggest that people are being

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Speaker 4: laid off and something is changing. So I think they'll

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Speaker 4: keep their eye on both and try to preserve a

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Speaker 4: rather good economy we have at the moment, and particularly

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Speaker 4: a good employment situation.

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Speaker 5: Can I ask you, being there in Atlanta, what was

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Speaker 5: the message that you interpreted was sent by voters in

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Speaker 5: the Atlanta, in Georgia and Atlanta in particular, and how

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Speaker 5: should that be interpreted in the formulation of policy, whether

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Speaker 5: it be monetary or fiscal.

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Speaker 4: Well, I'm so maybe a little early to opine on

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Speaker 4: what the message was from the electorate in Georgia, and Georgia,

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Speaker 4: of course, was like many other states around the country

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Speaker 4: where Trump carried the state and got the electoral votes

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Speaker 4: from the state. You know. I think one message is

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Speaker 4: that higher prices as a result of inflation, even with

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Speaker 4: the argument that inflation is declining, higher prices really do

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Speaker 4: affect the thinking of the voter, and I think that

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Speaker 4: that was one of several factors that was not favorable

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Speaker 4: to the Harris campaign. Prices rose during the hyperinflationary period

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Speaker 4: we saw right after the pandemic. Inflation has been coming down,

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Speaker 4: but the prices themselves have not been coming down, and

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Speaker 4: that is a real constraint on consumptions in many households,

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Speaker 4: and I think there was to some degree a vote

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Speaker 4: against that reality.

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Speaker 2: Dennis Lockhart, thank you so much for joining us. Dennis Lockhart,

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Speaker 2: former Atlanta Fed President, joining us from Atlanta via zoom thing.

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Speaker 2: And when I think about Atlanta, phenomenal city, I've got,

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Speaker 2: you know, just over my career, Senia experienced the growth

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Speaker 2: of Atlanta, having gone there for so many times and

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Speaker 2: had a lot of investment banking clients there. Every single

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Speaker 2: street is named Peachtree Streeter.

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Speaker 5: I believe Dennis's firm is on peach Street.

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Speaker 4: Right, Yeah, Basically something like something like thirty six streets

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Speaker 4: have the word Peachtree in the so it's very easy

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Speaker 4: to get confused. And then there are a lot of

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Speaker 4: other institutions that to use the word Peachtree. So it's

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Speaker 4: a certainly a Peachtree crazy city, to say the least.

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Speaker 2: Dennis, thanks so much for joining us. Former FED president

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Speaker 2: for Atlanta, Dennis Lockhart. Yeah, it's it's amazing. It's a

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Speaker 2: huge city, cosmopolitan, global city, but yeah, somebody, you know what,

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Speaker 2: it's Peachtree, but it's Peatree north West Southeast, and it's street,

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Speaker 2: it's Avenue, it's this. And so before you had like GPS,

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Speaker 2: you'd say, you give an address to a cab driver

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Speaker 2: nine times at attendant, you take it to the wrong

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Speaker 2: place because it's oh it's Peachtree Southeast you wanted, you know.

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Speaker 5: It's like and of course home to Coca Cola.

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Speaker 2: Yeah, it's an awesome town, that great stuff. And it's just

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Speaker 2: been I tell you, it's just been one of those

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Speaker 2: you talk about the you know, the growth of the

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Speaker 2: sun Belt, and Atlanta was the first, you know, and

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Speaker 2: just the dynamic growth just over the last.

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Speaker 3: Thirty forty years has been extraordinary.

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Speaker 2: So now I think like the fourth bag is market

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Speaker 2: in the US, it's something huge like that.

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Speaker 5: It's on my bucket list. I haven't been yet, oh dude.

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Speaker 5: I mean, I think I've been through the airport, but

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Speaker 5: that was Yeah.

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Speaker 3: But the traffic is just brutal down there.

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Speaker 2: It's one of those again in the growth of the Southeast.

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Speaker 3: You know, these towns go.

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Speaker 2: So quickly the traffic, you know that the instructure can't

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Speaker 2: keep up. But anyway, getting the latest from Dennis Lockhart.

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Speaker 1: Down there, you're listening to the Bloomberg Intelligence Podcast. Catch

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Speaker 2: Right, not nostiting it for Alex deal on Paul Swingeel

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Speaker 2: Life here in our Bloomberg Interactive Brokers studio, streaming live

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Speaker 2: on YouTube as well. It is FED Day, and after

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Speaker 2: announcing what's widely expected to be a quarter point cut industrates,

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Speaker 2: the FED will have to reassure markets it can manage

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Speaker 2: the impact of a president elect who's valed a raft

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Speaker 2: of new tariffs and tax cuts. What does that mean

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Speaker 2: is FED Chairman j Palce did his job just get

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Speaker 2: more difficult after twas Tuesday's political election results. Katerina sara

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Speaker 2: Eva joints us here, a Federal.

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Speaker 3: Reserve reporter from Bloomberg News.

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Speaker 2: Katerina did FED chairman pals job get a little bit

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Speaker 2: more difficult given the presidential election results from Tuesday?

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Speaker 6: I think in a way, yeah, I mean, of course,

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Speaker 6: you will try to you know, steer clear of anything

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Speaker 6: politics related in his press conference, and you know, when

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Speaker 6: he's asked about it going forward, they always try to

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Speaker 6: remain a political But I think the reality of a

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Speaker 6: new administration is that we are likely to see some

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Speaker 6: policies that may stoke inflation a little bit or even growth. Right,

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Speaker 6: it's not all negative, but it does mean, you know,

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Speaker 6: it may change some things for the FED, and we've

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Speaker 6: certainly seen that in banks. You know, some of the

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Speaker 6: Wall Street economists and financial markets kind of repricing what

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Speaker 6: they expect for the FED going forward.

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Speaker 7: So what do you think we're going to get out

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Speaker 7: of today? I feel like it's going to be a

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Speaker 7: pretty boring FED meeting since they're locked in for twenty

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Speaker 7: five basis points.

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Speaker 8: But they probably won't want to.

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Speaker 7: Say anything about the next meeting, certainly not about twenty

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Speaker 7: twenty five.

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Speaker 6: Right, Yeah, I think that's right. I think today should

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Speaker 6: be pretty boring. They're probably going to deliver what we're

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Speaker 6: all expecting, which is that quarter point cut, like you're saying,

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Speaker 6: and then it's it's not one of the quarterly meetings,

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Speaker 6: so we don't get updated economic forecasts from them, so

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Speaker 6: there's not kind of those extras that we would get at,

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Speaker 6: you know, that we got in September and that we'll

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Speaker 6: get in December. And yeah, I think I think they're

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Speaker 6: really going to want to leave the door open because

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Speaker 6: we don't you know, we've had some economic data recently

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Speaker 6: that has shown that things might be heating up a

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Speaker 6: little bit again. So even outside of the election, we're

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Speaker 6: seeing some strength in the economy that might have implications

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Speaker 6: for the FED. And then also they we don't know

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Speaker 6: what policies will be implemented. We were not going to

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Speaker 6: have a new government in place until January and then

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Speaker 6: you know, these things take a while, so the FED

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Speaker 6: isn't going to want to kind of subscribe itself to

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Speaker 6: anything that hasn't happened yet.

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Speaker 2: So what do you think we'll hear from Chairman Pal

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Speaker 2: today as it relates to the election. Is it just

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Speaker 2: literally say nothing to dance around it, or just I

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Speaker 2: guess kind of say, hey, you know, we're a political

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Speaker 2: and we're fine.

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Speaker 6: Yeah, I think that I think that is you know,

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Speaker 6: both of those is what we'll see. And we've seen

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Speaker 6: that all year. You know, this has been a big

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Speaker 6: question for them. But yeah, they just they love to say, look,

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Speaker 6: we have nothing to do with this. Our job is

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Speaker 6: to react to what the economy is doing. Right, They'll

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Speaker 6: they'll say things like Congress has given us this dual

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Speaker 6: mandate stable prices and maximum employment. What we're focused on,

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Speaker 6: and we're looking at the data as it comes in

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Speaker 6: to figure out what we can do. And they'll probably

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Speaker 6: repeat something that they've been saying this year as well,

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Speaker 6: which is that policies well positioned to address anything that

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Speaker 6: comes its way. So we're kind of in a you know,

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Speaker 6: they've started cutting interest rates already, we're in a position

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Speaker 6: where if they need to cut more, they can do that.

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Speaker 6: If they need to pause for a while, they can

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Speaker 6: do that. So I think they they see themselves as

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Speaker 6: being kind of in a good place to be nimble

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Speaker 6: and react.

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Speaker 8: Is policy really restrictive here?

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Speaker 7: I mean, I'm looking at six thousand right now on

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Speaker 7: the S and P five hundred. Unemployment is at four percent,

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Speaker 7: growth is at three percent? I mean, what are they

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Speaker 7: restricting with these levels?

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Speaker 6: Yeah, and we just got some really hot you know,

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Speaker 6: earnings number not earning like worker earnings numbers today, So yeah,

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Speaker 6: I think that's been earnings.

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Speaker 8: Earnings also have been good, and we're.

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Speaker 7: Expecting fourteen percent earnings growth in Q four and Q one.

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Speaker 6: Yes, yeah, yeah, yeah, No, I mean that's been the

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Speaker 6: million dollar question all along, Right, how are we restrictive?

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Speaker 6: How restrictive are we? If we are, how is that

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Speaker 6: even being transmitted to the economy right now? I mean,

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Speaker 6: we know, for example, with mortgage rates, a lot of

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Speaker 6: people are locked into low rates and it's not having

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Speaker 6: the transmission effect it that it normally would. So it is,

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Speaker 6: it's it's I think that's an open question. And I

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Speaker 6: you know, I do wonder if we're going to start

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Speaker 6: hearing more chatter of are they going to have to

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Speaker 6: start hiking again if things get really out of hand?

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Speaker 8: Paul, you're not locked into a low mortgage rate.

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Speaker 3: No, I'm at six percent?

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Speaker 7: And are your refinanced dreams dash by Trump dash Yeah.

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Speaker 2: I mean the rates just kick back up here, all right?

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Speaker 2: Katherina sorry, a Federal Reserve reporter for Bloomberg News. Thank

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Speaker 2: you so much for joining us there, matt Before we

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Speaker 2: let you go here and we go to Joe Matthew

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Speaker 2: and bounce of power.

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Speaker 3: What are you driving?

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Speaker 9: Oh?

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Speaker 7: Actually right now I'm driving a So for those who

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Speaker 7: don't listen regularly, or watch my show. I drive a

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Speaker 7: new car every week, so I'm always test driving a

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Speaker 7: new vehicle for my podcast, Hot Pursuit with Hannah Elliott.

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Speaker 7: Usually I'm in fancier cars, like maybe an Aston Martin

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Speaker 7: or hot new Mercedes, a lot of BMW's I like

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Speaker 7: a lot.

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Speaker 8: Right now, I'm driving a Chrysler pacifica minivan.

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Speaker 3: How's that going.

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Speaker 8: It's a hybrid. I gotta say I had never driven

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Speaker 8: a minivan before.

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Speaker 3: Two kids, so you should be in the market.

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Speaker 9: Yeah.

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Speaker 7: And I've spent so many years and spent so much

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Speaker 7: money trying to avoid going to the minivan. I get

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Speaker 7: an SUV that functions like a minivan but still looks tough,

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Speaker 7: and I feel like I've been wasting.

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Speaker 8: That cash because this is a pretty nice ride.

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Speaker 7: I mean, it's not amazing, you know, but it's got

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Speaker 7: the low load floor, it's kind of smooth sailing with

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Speaker 7: the hybrid engine.

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Speaker 8: It's pretty good.

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Speaker 2: See there he goes. Yeah, we were twenty years we

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Speaker 2: had the minivan thing. Now no Moss, Katerina, thank you

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Speaker 2: so much for joining us.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple car playing and

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Speaker 1: broud Otto with the Bloomberg Business app. Listen on demand

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Speaker 1: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 2: John Tucker sitting in for Alex Steel on Paul Sweeney

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Speaker 2: Your live here in our Bloomberg and Arctic Broker studio.

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Speaker 3: We are streaming live on YouTube as well.

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Speaker 2: What does Donald Trump and the White House mean for

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Speaker 2: big tech? Dan ives Join says he's managing director and

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Speaker 2: senior equity analysts for web Bush Securities. Dan, I mean

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Speaker 2: a lot of the questions for investors as released to

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Speaker 2: big tech and the Trump administration is I mean, what

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Speaker 2: does it mean for big tech writ large? But I'm

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Speaker 2: want to start with Tesla because that's an industry that

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Speaker 2: depends upon cooperation with the government.

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Speaker 3: What do you think about Tesla?

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Speaker 10: I mean from mosque betting on Trump, it might be

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Speaker 10: the best poker move he ever made, That's right, and

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Speaker 10: when you think about now, this is gonna really catalyze

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Speaker 10: autonomous full self driving. A lot of the regulatory issues

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Speaker 10: that Tessa's been dealing with, I think essentially Mussim go

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Speaker 10: out the window here, Tariffs get pulled, which is negative

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Speaker 10: for the ev industreet bullish for Tessa. Look, if you're

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Speaker 10: a Tessa's shareholder, for Trump getting in is basically a

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Speaker 10: Champagne moment, and I believe starts to unlock. We've told

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Speaker 10: out on the show the trillion dollars of AI valuation

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Speaker 10: now starting to get unlocked with Trump in the White House.

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Speaker 5: Yeah, just because of the jump in the stock. Yes

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Speaker 5: that Elon Mussey had a twenty six and a half

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Speaker 5: billion dollars made back to Yeah, I guess it was

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Speaker 5: a good trade. Can we talk regulation? What's the regulatory

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Speaker 5: landscape gonna look like? What does that mean for tech?

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Speaker 5: How do you gain that right now?

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Speaker 10: But I think the biggest take any horror movie you want,

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Speaker 10: that's really been what Kansman to tech tech. So so

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Speaker 10: when you look at con of the FTC has really

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Speaker 10: been that nightmare for big tech in terms of M

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Speaker 10: and A deals, anything they do. And that's really that's

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Speaker 10: been an issue that's been overhanging a lot of these stocks,

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Speaker 10: not just Google, Apple and some others. I think the

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Speaker 10: view is heavy view that she's gone at the FTC

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Speaker 10: and that ultimately will let a much more friendly deal

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Speaker 10: environment for tech.

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Speaker 5: But doesn't that doesn't pertain to Europe though, what's uh

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Speaker 5: or does.

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Speaker 10: It sure now? And you're a big tech I mean

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Speaker 10: they're used to find almost like cups of coffee there,

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Speaker 10: so that's always they're always gonna get that from Brussels.

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Speaker 10: But the big issue has been you know, Winter Coon

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Speaker 10: from FTC has really been the big issue with her

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Speaker 10: looking to be out. That's another part of this rally

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Speaker 10: here because I think what it's gonna do is gonna

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Speaker 10: be a tidal wave of M and A. You're gonna

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Speaker 10: see big tech. You still have DJ and some other issues,

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Speaker 10: but you see them more aggressive from an AI perspective,

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Speaker 10: and and this is really what tack invessors want to see,

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Speaker 10: less regulatory. And then we got to see a red

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Speaker 10: sweep you combo that you know, that's something that's a

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Speaker 10: that's a backdrop that's very very bullish for tech investors.

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Speaker 2: There's been some comments from Trump and from President elect

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Speaker 2: Vice President elect jd Vance negative towards maybe some social

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Speaker 2: media and tech in general.

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Speaker 3: How do you take that into account?

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Speaker 10: Yeah, I mean, look, they're not fans of Google meta.

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Speaker 10: The irony is you look at TikTok Trump getting in

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Speaker 10: basically means TikTok to they're not going to get banned,

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Speaker 10: and I don't think anything changes from an ownership perspective.

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Speaker 2: So with President look Trump in the White House, what

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Speaker 2: does that mean for TikTok?

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Speaker 10: So from a twilight zone, even though he started to

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Speaker 10: get the actual looking to get TikTok banned, here we

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Speaker 10: are one eighty, it's the opposite actually not supporting a

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Speaker 10: TikTok ban. So now TikTok doesn't get banned.

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Speaker 1: Now.

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Speaker 10: Part of that is because Trump is very negative towards

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Speaker 10: Google Meta. So when you think about it from a

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Speaker 10: tech perspective and you started a whittling the stocks yesterday,

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Speaker 10: i'd expect that little twelve round battle that they'll be

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Speaker 10: going through with Trump. In terms of some of the

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Speaker 10: the issues around you know, what we's on social media

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Speaker 10: section two thirty, which has obviously been the shield. So

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Speaker 10: section two thirty is really what shields social media comingies legally,

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Speaker 10: you know, and that's been a big contentious issue. The

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Speaker 10: view is if Trump comes in, what happens to section

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Speaker 10: two thirty. I don't think anything happens per se, But

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Speaker 10: when you look at some of the risk quote unquote

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Speaker 10: in terms of big tech, definitely on social media, and

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Speaker 10: then clearly on the China issue in terms of He'll

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Speaker 10: be a lot of harsher on tariffs. But now the

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Speaker 10: difference is who's to his right as the whisper. It's Musk,

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Speaker 10: So Musk is gonna be able I think, and the

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Speaker 10: view is on the street navigate these issues when it

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Speaker 10: comes to China tariffs, AI with now being the sort

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Speaker 10: of whisper.

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Speaker 5: Well, if you're an investor in Nvidio, how do you,

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Speaker 5: for the instance, how do you view this?

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Speaker 10: The way you view this is that you know, initially

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Speaker 10: you'd say maybe negative on China tariffs and what that

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Speaker 10: could do for godfather of Ai Jensen and video. The

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Speaker 10: reality is that with Musk in there, cool hand will

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Speaker 10: ultimately prevail. I don't really see any major risk from

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Speaker 10: an Nvidio perspective to some extent, maybe more of those

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Speaker 10: chips going toward US instead of China, which is ultimately

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Speaker 10: just bullish or big tech. That's why any which way

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Speaker 10: you kind of take this, it's bullish US tech, bearish

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Speaker 10: China tech. But the Musk and the and just him

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Speaker 10: being integral in sixteen hundred Pennsylvania Avenue is very important

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Speaker 10: in terms of the view and the tech trade. It's

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Speaker 10: not some two or two bureaucrat that that's ultimately grandstand.

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Speaker 10: They're trying to get through some tariffs. Now you got

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Speaker 10: Must that has I think the best pulse in terms

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Speaker 10: of what's going on broader attack and AI.

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Speaker 2: So you seem to think that Elon Musk is gonna

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Speaker 2: play a active role in this Trump administration.

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Speaker 10: He is going to play a significant role now unofficient.

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Speaker 10: Now is he gonna be a cabinet No, because then

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Speaker 10: that that's very complicated in terms of his ownership and

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Speaker 10: what he'd have to do for his stock. But he's

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Speaker 10: essentially gonna be called it AI ambassador, call it unofficial

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Speaker 10: cabinet whisper. Must will have a very important role in

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Speaker 10: this White House, specifically around driving AI. And that's also

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Speaker 10: why like autonomous is gonna be front and center, because

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Speaker 10: that's he is very focused on autonomous in terms of

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Speaker 10: potentially Trump accelerating some of those autonomous FSD issues. And

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Speaker 10: that is key to the stock because we believe that's

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Speaker 10: worth a trillion dollars alone in terms of the AI

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Speaker 10: autonomous story.

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Speaker 5: Just a broader question for you can text satisfy the

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Speaker 5: market expectations, I.

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Speaker 10: Think, and we've told about it on the show. I

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Speaker 10: mean demand the spy is still fifteen to one. So

439
00:24:54,760 --> 00:24:57,840
Speaker 10: the Bears in their spreadsheets ten four in New York

440
00:24:57,880 --> 00:25:01,200
Speaker 10: City office building, they can see AI in those spreadsheets.

441
00:25:01,600 --> 00:25:04,119
Speaker 10: I think numbers go up across the board ten to

442
00:25:04,240 --> 00:25:07,719
Speaker 10: fifteen percent going into next year. And our view is

443
00:25:08,000 --> 00:25:10,760
Speaker 10: it's goldilocks. Fed's gonna cut one hundred hundred and fifty BIPs.

444
00:25:11,200 --> 00:25:14,160
Speaker 10: You still have six trillion sidelines and we are talking

445
00:25:14,160 --> 00:25:18,560
Speaker 10: about AI revolution. It is still call at nine to

446
00:25:18,560 --> 00:25:22,639
Speaker 10: thirty pm in the AI party that goes to four am.

447
00:25:23,840 --> 00:25:25,680
Speaker 2: Best pick right here, Dan thirty seconds.

448
00:25:25,680 --> 00:25:29,600
Speaker 10: The messy of AI. Polunteer because the area and again

449
00:25:29,640 --> 00:25:34,600
Speaker 10: when you look use cases, pouneers, they're in that mount

450
00:25:34,680 --> 00:25:38,119
Speaker 10: rushmore of course with Jensen with Microsoft with what we

451
00:25:38,520 --> 00:25:41,440
Speaker 10: names like service now as well Pounteer driving it from

452
00:25:41,440 --> 00:25:46,560
Speaker 10: a use case perspective, and still many institutions, I mean,

453
00:25:46,720 --> 00:25:50,960
Speaker 10: you know, very negative. Unpollunteer. I love the setup of

454
00:25:51,040 --> 00:25:52,600
Speaker 10: this story over the coming years.

455
00:25:53,600 --> 00:25:55,440
Speaker 5: Jell me Buffett, will that shirt to you about the

456
00:25:55,440 --> 00:25:56,800
Speaker 5: way again?

457
00:25:56,960 --> 00:25:58,639
Speaker 10: He did, And the thing is this was a shirt.

458
00:25:58,680 --> 00:26:00,800
Speaker 10: I was actually gonna give it to Key, but he

459
00:26:01,200 --> 00:26:04,120
Speaker 10: actually he said it was a little too little two.

460
00:26:04,880 --> 00:26:06,679
Speaker 2: John, I don't think he can go You can't go

461
00:26:06,720 --> 00:26:08,400
Speaker 2: out like this after Labor Day. But Dan i'ves skin

462
00:26:08,640 --> 00:26:09,160
Speaker 2: pull it off.

463
00:26:09,359 --> 00:26:09,919
Speaker 3: He can pull it off.

464
00:26:10,000 --> 00:26:14,240
Speaker 2: Dan I's managing director, Senior ecurianos a webush security securities traintings.

465
00:26:14,240 --> 00:26:18,000
Speaker 2: Here in our Bloomberg Interactive Brokers Studio.

466
00:26:18,440 --> 00:26:22,320
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

467
00:26:22,400 --> 00:26:25,440
Speaker 1: weekdays at ten am Eastern on Apple card Play and

468
00:26:25,440 --> 00:26:28,399
Speaker 1: Android Auto with the Bloomberg Business App. You can also

469
00:26:28,440 --> 00:26:31,640
Speaker 1: listen live on Amazon Alexa from our flagship New York

470
00:26:31,680 --> 00:26:36,879
Speaker 1: station Just Say Alexa playing Bloomberg eleven thirty.

471
00:26:36,880 --> 00:26:39,359
Speaker 2: Matt Miller sitting in for Alex Steele here in this

472
00:26:39,680 --> 00:26:41,800
Speaker 2: we appreciate that Paul Sweeney, you live here in our

473
00:26:41,800 --> 00:26:45,720
Speaker 2: Bloomberg Interactive Broker Studio or streaming live on YouTube as well. Madam,

474
00:26:45,760 --> 00:26:48,959
Speaker 2: not sure if you're aware of my Milwaukee theory and

475
00:26:49,000 --> 00:26:53,280
Speaker 2: my Milwaukee theories pound for pound, some of the best

476
00:26:53,600 --> 00:26:55,440
Speaker 2: money managers in the world are Milwaukee.

477
00:26:55,520 --> 00:26:56,120
Speaker 3: I had no idea.

478
00:26:56,280 --> 00:26:57,840
Speaker 8: I thought you were going to say motorcycles.

479
00:26:57,880 --> 00:27:00,960
Speaker 2: No, no, Early Davidson, Baby, I know, I know the

480
00:27:01,000 --> 00:27:03,119
Speaker 2: hog Hog. I don't know what's going on out there.

481
00:27:03,119 --> 00:27:05,520
Speaker 2: Maybe it's the University of Wisconsin. But one of those

482
00:27:05,520 --> 00:27:08,000
Speaker 2: folks joins us right now. Janet Rilling, Senior portfolio manager,

483
00:27:08,160 --> 00:27:11,639
Speaker 2: head of Plus fixed Income and Allspring Global, invests me

484
00:27:11,720 --> 00:27:14,840
Speaker 2: because A. Maletti was one of my first clients and

485
00:27:14,880 --> 00:27:16,880
Speaker 2: she's one of the smartest folks Bloomberg and Active Broker

486
00:27:16,920 --> 00:27:21,520
Speaker 2: Studios where Janet finds herself. Janet today versus maybe a

487
00:27:21,600 --> 00:27:25,719
Speaker 2: couple of days ago, has your view of the bond market,

488
00:27:25,800 --> 00:27:29,000
Speaker 2: the treasury market, the Federal Reserve? Is that change given

489
00:27:29,040 --> 00:27:31,120
Speaker 2: what's happened politically here in this country in the past

490
00:27:31,160 --> 00:27:31,800
Speaker 2: couple of days.

491
00:27:32,240 --> 00:27:36,199
Speaker 11: Well, we do have new information and we can remove

492
00:27:36,240 --> 00:27:39,040
Speaker 11: some scenarios off the table because we do know some

493
00:27:39,119 --> 00:27:42,000
Speaker 11: things about what our government's going to look like in

494
00:27:42,000 --> 00:27:45,199
Speaker 11: twenty twenty five. When it comes to the Fed, however,

495
00:27:45,560 --> 00:27:47,720
Speaker 11: I think the Fed is on the same path. They

496
00:27:47,760 --> 00:27:51,600
Speaker 11: are looking to get off of restrictive level of rates.

497
00:27:51,880 --> 00:27:54,880
Speaker 11: The expectation, of course today is that twenty five basis

498
00:27:54,880 --> 00:27:57,280
Speaker 11: point rate cut, and I think as they look forward,

499
00:27:57,280 --> 00:27:59,719
Speaker 11: they're going to continue to want to move in that direction.

500
00:28:00,200 --> 00:28:03,480
Speaker 11: But they two now have more information, though still not

501
00:28:03,720 --> 00:28:06,520
Speaker 11: enough to really know what policies will be implemented. So

502
00:28:06,520 --> 00:28:08,080
Speaker 11: I think they're going to be a cautious in terms

503
00:28:08,160 --> 00:28:10,800
Speaker 11: of how they interpret the election results, but they are

504
00:28:10,840 --> 00:28:13,640
Speaker 11: certainly aware of them, and I think down the road

505
00:28:13,640 --> 00:28:15,240
Speaker 11: that is going to influence their path.

506
00:28:15,960 --> 00:28:19,399
Speaker 7: Yeah, we had priced in about one hundred and seventy

507
00:28:19,440 --> 00:28:21,960
Speaker 7: basis points of cuts for next year for twenty twenty five,

508
00:28:22,640 --> 00:28:25,919
Speaker 7: and right now the terminal with the WRP function is

509
00:28:25,960 --> 00:28:29,720
Speaker 7: showing only about eighty basis points of cuts for next year.

510
00:28:29,760 --> 00:28:35,080
Speaker 7: So the market has moved substantially in terms of pricing.

511
00:28:35,160 --> 00:28:37,640
Speaker 7: Obviously you can see it in the long end well

512
00:28:37,640 --> 00:28:39,560
Speaker 7: across the curve, but especially on the long end as

513
00:28:39,600 --> 00:28:42,600
Speaker 7: well of the treasury yields.

514
00:28:43,880 --> 00:28:46,520
Speaker 8: Do you think that we turn that around?

515
00:28:46,560 --> 00:28:49,720
Speaker 7: Is that just a knee jerk reaction to Donald Trump

516
00:28:50,840 --> 00:28:53,760
Speaker 7: winning the presidency. Is it possible that rates on the

517
00:28:53,760 --> 00:28:56,360
Speaker 7: ten year go back under four or do you see

518
00:28:56,400 --> 00:28:57,960
Speaker 7: them headed back towards five.

519
00:28:58,920 --> 00:29:01,680
Speaker 11: I do think it's possible that they move back under four.

520
00:29:02,240 --> 00:29:06,280
Speaker 11: You know, we did learn with this change in government

521
00:29:06,400 --> 00:29:10,080
Speaker 11: that you know, we'll probably have a pretty supportive fiscal

522
00:29:10,200 --> 00:29:14,120
Speaker 11: outlook for growth, So that's something that you know will

523
00:29:14,200 --> 00:29:17,240
Speaker 11: keep things growing. On the other hand, the prospect of

524
00:29:17,280 --> 00:29:22,040
Speaker 11: tariffs leads to potentially more upward pricing pressure. So with

525
00:29:22,440 --> 00:29:24,680
Speaker 11: that in place, I mean it's a balance. The tariffs

526
00:29:24,680 --> 00:29:26,760
Speaker 11: will take quite some time to first of all get

527
00:29:26,760 --> 00:29:29,200
Speaker 11: in place if the policy is successful, and then to

528
00:29:29,200 --> 00:29:32,360
Speaker 11: work its way through the economy. In the meantime, you know,

529
00:29:32,640 --> 00:29:35,680
Speaker 11: I think there is the opportunity for rates to start

530
00:29:35,720 --> 00:29:38,920
Speaker 11: coming back down after people have digested all all of

531
00:29:38,960 --> 00:29:42,080
Speaker 11: the information. Inflation, though it does still need to be

532
00:29:42,120 --> 00:29:43,840
Speaker 11: top of mind. You know, it is not at the

533
00:29:43,880 --> 00:29:47,080
Speaker 11: Fed's target. It's been moving in the right direction, but

534
00:29:47,440 --> 00:29:51,000
Speaker 11: it's been sticky, and you know that that is going

535
00:29:51,040 --> 00:29:53,480
Speaker 11: to be a focus for the bond market. And certainly

536
00:29:53,480 --> 00:29:55,960
Speaker 11: if the bond market is of the view that we're

537
00:29:56,000 --> 00:29:59,280
Speaker 11: going to continue to grow the deficit, that's going to

538
00:29:59,280 --> 00:30:02,360
Speaker 11: weigh on rates, and so it's probably more likely we'll

539
00:30:02,400 --> 00:30:05,000
Speaker 11: be in this range. But I do think it's possible

540
00:30:05,040 --> 00:30:06,120
Speaker 11: we can go back below four.

541
00:30:06,640 --> 00:30:10,200
Speaker 2: All right, So given that backdrop, do I just sit

542
00:30:10,240 --> 00:30:12,320
Speaker 2: in my two year treasury and get four point two percent?

543
00:30:12,400 --> 00:30:14,200
Speaker 3: Or are I take some credit risk out there?

544
00:30:14,720 --> 00:30:17,040
Speaker 11: Well, it's certainly tempting to stay at the front end,

545
00:30:17,440 --> 00:30:19,800
Speaker 11: particularly money markets, right, We know a lot of folks

546
00:30:19,880 --> 00:30:22,160
Speaker 11: have stayed in money markets. But what we have to

547
00:30:22,200 --> 00:30:25,080
Speaker 11: remember is those yields will continue to reset lower as

548
00:30:25,120 --> 00:30:27,400
Speaker 11: the FED continues to cut rates, and we do think

549
00:30:27,440 --> 00:30:30,080
Speaker 11: that will persist. The FED does want to move off

550
00:30:30,080 --> 00:30:33,360
Speaker 11: of this restrictive level, so to avoid that reinvestment risk,

551
00:30:33,400 --> 00:30:35,480
Speaker 11: it can make sense to start moving out the curve.

552
00:30:35,960 --> 00:30:38,240
Speaker 11: And in terms of credit, we do know credit spreads

553
00:30:38,280 --> 00:30:41,280
Speaker 11: are rich, but the economic outlook is quite good, and

554
00:30:41,360 --> 00:30:44,760
Speaker 11: so credit spreads could stay narrow for quite some time.

555
00:30:45,080 --> 00:30:48,520
Speaker 11: So we're not recommending a full overweight in corporate credit,

556
00:30:48,680 --> 00:30:50,960
Speaker 11: but we do think some allocation there makes sense to

557
00:30:51,000 --> 00:30:54,680
Speaker 11: get that incremental yield. Stay highly diversified, that's quite important.

558
00:30:55,280 --> 00:30:57,480
Speaker 11: But you know, if you're just huddled in the front end,

559
00:30:57,600 --> 00:31:00,760
Speaker 11: you're really positioned for one scenario rather than be diversified

560
00:31:00,800 --> 00:31:03,160
Speaker 11: for what is likely a wide range of scenarios.

561
00:31:03,440 --> 00:31:06,000
Speaker 7: In terms of stocks, we're just thirty five points away

562
00:31:06,040 --> 00:31:09,400
Speaker 7: from S and P six thousand. I mean, it's pretty

563
00:31:09,440 --> 00:31:11,360
Speaker 7: unbelievable as I look down at my screen and I

564
00:31:11,400 --> 00:31:14,680
Speaker 7: see fifty nine to sixty six on the S and

565
00:31:14,680 --> 00:31:19,080
Speaker 7: P five hundred right now, you know, there are very

566
00:31:19,120 --> 00:31:21,800
Speaker 7: few strategists who even have this as a year end target,

567
00:31:21,880 --> 00:31:23,680
Speaker 7: let alone a twenty twenty five target.

568
00:31:24,280 --> 00:31:26,800
Speaker 8: Do you think we have more room to run here?

569
00:31:28,160 --> 00:31:30,120
Speaker 11: Well, you know, again, I think we're setting up for

570
00:31:30,160 --> 00:31:33,480
Speaker 11: a good growth environment. We have more clarity on tax policy,

571
00:31:33,680 --> 00:31:36,760
Speaker 11: and from the corporate side, I think that is supportive.

572
00:31:37,120 --> 00:31:40,880
Speaker 11: It allows companies to make decisions to invest, you know,

573
00:31:41,000 --> 00:31:44,560
Speaker 11: to continue to add to capital expenditures to fuel that

574
00:31:44,600 --> 00:31:47,200
Speaker 11: future growth. So I think that is about a lot

575
00:31:47,240 --> 00:31:50,800
Speaker 11: of the optimism that's baked in. But we have seen

576
00:31:50,840 --> 00:31:53,560
Speaker 11: in the past, you know, the knee jerk reaction after elections,

577
00:31:53,560 --> 00:31:57,680
Speaker 11: people extrapolating things. It's not going to be totally clear sailing.

578
00:31:57,920 --> 00:32:01,520
Speaker 11: There's going to be you know, more talk about what

579
00:32:01,640 --> 00:32:04,480
Speaker 11: is the tariff policy? What impact will that have working

580
00:32:04,560 --> 00:32:07,840
Speaker 11: its way through the supply chain. You know, the input

581
00:32:07,880 --> 00:32:11,600
Speaker 11: costs could be impacted. Retailers that you have a lot

582
00:32:11,640 --> 00:32:14,840
Speaker 11: of goods that come from China could impact their margins

583
00:32:14,960 --> 00:32:16,840
Speaker 11: or else they have to pass that along to the consumer.

584
00:32:17,120 --> 00:32:19,400
Speaker 11: So we're going to have to continue to watch how

585
00:32:19,400 --> 00:32:21,880
Speaker 11: the consumer is doing through all of this. But I

586
00:32:21,880 --> 00:32:24,640
Speaker 11: think at the outset, certainly having more certainty and tax

587
00:32:24,720 --> 00:32:28,600
Speaker 11: policy and decision making by corporate America is helpful in

588
00:32:28,600 --> 00:32:29,840
Speaker 11: the fixed income world.

589
00:32:29,920 --> 00:32:32,680
Speaker 8: What is a structured product or what are structured products?

590
00:32:32,840 --> 00:32:34,760
Speaker 8: Because a lot of people tell me that's where I

591
00:32:34,800 --> 00:32:35,320
Speaker 8: need to look.

592
00:32:36,000 --> 00:32:37,000
Speaker 3: How do you guys think about that?

593
00:32:37,400 --> 00:32:39,080
Speaker 11: Well, first of all, we would agree, I think that's

594
00:32:39,120 --> 00:32:39,960
Speaker 11: a good place to look.

595
00:32:40,360 --> 00:32:43,160
Speaker 2: Those others vage backed securities, asset backed securities, that kind

596
00:32:43,160 --> 00:32:43,400
Speaker 2: of thing.

597
00:32:43,480 --> 00:32:46,120
Speaker 11: Yeah, it's really a range of securities. So agency mortgage

598
00:32:46,120 --> 00:32:48,440
Speaker 11: back securities is the largest part of that market, but

599
00:32:48,560 --> 00:32:51,480
Speaker 11: abs or asset backed securities, which actually has a wide

600
00:32:51,560 --> 00:32:54,080
Speaker 11: range of exposures. I mean it can be consumer like

601
00:32:54,120 --> 00:32:57,520
Speaker 11: credit cards, it can be auto exposures, but also some

602
00:32:58,320 --> 00:33:01,960
Speaker 11: company exposures, franchise deals like five Guys as an example

603
00:33:02,120 --> 00:33:07,720
Speaker 11: of a franchise deal. So it's delicious, delicious. Yeah, So

604
00:33:07,760 --> 00:33:09,960
Speaker 11: that's the way you could get exposure to that, you know,

605
00:33:10,120 --> 00:33:13,400
Speaker 11: very diversified exposures there. That's part of our our view

606
00:33:13,440 --> 00:33:15,960
Speaker 11: of what the appeal is to structured product and a

607
00:33:16,040 --> 00:33:18,480
Speaker 11: very important part of the investment grade part of the

608
00:33:18,560 --> 00:33:19,440
Speaker 11: fixed income market.

609
00:33:19,920 --> 00:33:22,800
Speaker 7: So you're not talking like buffer products, You're not talking

610
00:33:22,840 --> 00:33:27,960
Speaker 7: like you know, capped gains and protect in against losses.

611
00:33:28,200 --> 00:33:29,600
Speaker 8: When you talk about structure.

612
00:33:29,240 --> 00:33:32,920
Speaker 11: No thinking about you know, cash flow streams, that are

613
00:33:32,960 --> 00:33:36,000
Speaker 11: packaged in a way that focus on different parts of

614
00:33:36,000 --> 00:33:38,920
Speaker 11: the market. So you know, a pool of credit card

615
00:33:39,840 --> 00:33:43,040
Speaker 11: balances would be one example of ABS.

616
00:33:43,640 --> 00:33:44,880
Speaker 2: There's other exposures too.

617
00:33:45,000 --> 00:33:48,560
Speaker 11: Commercial mortgage backed securities is another segment of structured product.

618
00:33:48,800 --> 00:33:52,200
Speaker 11: Certainly an area where like office properties have been under pressure,

619
00:33:52,640 --> 00:33:55,479
Speaker 11: but it's a very wide space, and so there are

620
00:33:55,520 --> 00:34:01,760
Speaker 11: things beyond commercial or office properties, things like leisure, retail,

621
00:34:02,080 --> 00:34:04,560
Speaker 11: and many of those properties are doing quite well. So

622
00:34:04,560 --> 00:34:06,840
Speaker 11: that's another avenue for structure product.

623
00:34:07,000 --> 00:34:12,120
Speaker 7: Student housing, adult living or senior living facilities.

624
00:34:14,480 --> 00:34:16,560
Speaker 3: US versus non US. What do you guys at all

625
00:34:16,560 --> 00:34:18,760
Speaker 3: spring do we do both?

626
00:34:19,600 --> 00:34:22,760
Speaker 11: We think that being diversified globally makes a lot of sense.

627
00:34:23,440 --> 00:34:27,200
Speaker 11: European credit, for example, is an interesting area. You can

628
00:34:27,600 --> 00:34:30,480
Speaker 11: look at valuation there compared to the US currently it

629
00:34:30,640 --> 00:34:33,759
Speaker 11: slightly tilts in the favor of European credit, and it's

630
00:34:33,800 --> 00:34:36,520
Speaker 11: a way to just diversify your portfolio bit more. We

631
00:34:36,640 --> 00:34:39,640
Speaker 11: like the triple B area of European credit and then

632
00:34:39,640 --> 00:34:41,440
Speaker 11: that higher rung and high yield the double B.

633
00:34:42,440 --> 00:34:45,120
Speaker 2: All right, good stuff, Jennet, thanks so much for joining.

634
00:34:45,200 --> 00:34:47,560
Speaker 2: You're based in monomy. Can pronounce this and I've been

635
00:34:47,600 --> 00:34:49,960
Speaker 2: doing it for four Yearsnomine.

636
00:34:49,040 --> 00:34:50,960
Speaker 11: Falls Menomine falls, right, and that.

637
00:34:50,880 --> 00:34:54,359
Speaker 2: Was originally Dick Strong Strong asset Management. We're out there,

638
00:34:54,480 --> 00:34:56,600
Speaker 2: and I think he just went to University of Wisconsin

639
00:34:56,640 --> 00:34:58,239
Speaker 2: picked out like the best students every year.

640
00:34:58,320 --> 00:35:00,000
Speaker 8: I mean, I've heard your Milwaukee theory before.

641
00:35:00,360 --> 00:35:01,840
Speaker 6: Yes, and it's.

642
00:35:01,480 --> 00:35:04,840
Speaker 2: Yeah and so and downtown Milwaukee. There's some old, krusty

643
00:35:04,920 --> 00:35:07,359
Speaker 2: little firms down there that have been managing little money

644
00:35:07,600 --> 00:35:09,560
Speaker 2: you'd never heard of, but they've been doing it for

645
00:35:09,719 --> 00:35:10,520
Speaker 2: like generations.

646
00:35:10,520 --> 00:35:12,719
Speaker 3: I don't know what's going on there, but it sounds.

647
00:35:12,400 --> 00:35:14,720
Speaker 8: Fantastic to me. I love Laverne and Shirley.

648
00:35:14,920 --> 00:35:15,120
Speaker 6: Yeah.

649
00:35:15,160 --> 00:35:17,839
Speaker 7: Who didn't Donald Trump say it wasn't a very nice

650
00:35:17,880 --> 00:35:19,120
Speaker 7: place to I don't.

651
00:35:18,960 --> 00:35:21,160
Speaker 8: Know it wasn't He he used a more colorful term.

652
00:35:21,200 --> 00:35:22,040
Speaker 3: I thought that was the truth.

653
00:35:22,680 --> 00:35:23,480
Speaker 8: Or is that all that too?

654
00:35:23,560 --> 00:35:26,000
Speaker 2: You could have been as well, right, Janet Really, senior

655
00:35:26,000 --> 00:35:29,760
Speaker 2: portfolio manager and head of plus fixed income Allspring Global

656
00:35:29,760 --> 00:35:31,719
Speaker 2: Investments in a greater Milwaukee area.

657
00:35:31,719 --> 00:35:32,120
Speaker 3: Will call it.

658
00:35:32,120 --> 00:35:34,160
Speaker 2: Deputy's here in our New York in Orector Brokers studio.

659
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Speaker 2: Coming to New York because it is the world capital.

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Speaker 1: Of course, you're listening to the Bloomberg Intelligence podcast Catch

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Speaker 1: US live weekdays at ten am Eastern on Apple card

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Speaker 1: Play and Android Otto with the Bloomberg Business Act. You

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00:35:48,520 --> 00:35:51,800
Speaker 1: can also listen live on Amazon Alexa from our flagship

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Speaker 1: New York station Just Say Alexa playing Bloomberg eleven thirty.

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Speaker 2: Kanucker sitting in for Alex Steele on Paul Sweeny. Were

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Speaker 2: live here in our Bloomberg Interactive Broker's studio, and we're

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Speaker 2: also streaming live on YouTube. In a few minutes, we're

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Speaker 2: going to check on with Alison Williams. She covers the

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Speaker 2: big banks for Bloomberg Intelligence and what blew me away yesterday, John,

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Speaker 2: was the move in the banks. You had companies a

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Speaker 2: good jillion dollars in market cap like JP Morgan, Goldman,

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Speaker 2: Sachs up ten eleven, twelve percent.

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Speaker 5: Most of this is based on what they think is

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Speaker 5: going to be the new regulatory regime or lack.

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Speaker 2: There lack thereof I think is how I understand it.

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Speaker 2: This basl and it's just basle endgame, bazil three. These

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Speaker 2: are global rules for banking that were enacted after the

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Speaker 2: Great Financial Crisis.

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Speaker 5: And yes, how do you get rid of global rules

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Speaker 5: or you just ignore them?

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Speaker 2: Well, we basically I think you're just going to kind

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Speaker 2: of ignore them. But I think that's kind of the deal.

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Speaker 2: But I mean, it just it just means greater profitability

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Speaker 2: potentially for some of the big banks in the US.

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Speaker 2: And we saw just huge moves here, so we want

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Speaker 2: to figure out what's going on. Alison Williams can help

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Speaker 2: us there. Alison Williams, she's the senior ALM. She covers

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Speaker 2: all the big global investment banks for Bloomberg Intelligence. Alison,

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Speaker 2: why did the banks rally so much yesterday on the

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Speaker 2: news of Donald Trump becoming the president elect?

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Speaker 9: So we see three things.

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Speaker 12: So the big one is less regulation. Secondly, higher industrates,

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Speaker 12: and then third we really see some momentum for fee revenue,

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Speaker 12: which has really been powering the big banks that I cover.

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Speaker 12: So the regulation is the big one, and it's not

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Speaker 12: just some of the specific issues for the banks as

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Speaker 12: a whole and one or two banks, but it is just,

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Speaker 12: you know, the feeling that the pendulum can swing the

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Speaker 12: other way right, so that there won't be new regulations

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Speaker 12: and that some of the things that are sort of

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Speaker 12: in the pipeline could be watered down or pushed out.

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Speaker 12: So you were just speaking about BOSO three, So that

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Speaker 12: BOSO three endgame has been the big one for the

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Speaker 12: largest banks, and you know, Basil dictates that all jurisdictions

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Speaker 12: around the world have to do.

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Speaker 9: Some form of implementation.

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Speaker 12: But the US proposal that came out in twenty twenty

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Speaker 12: three was really much stricter than we saw in other regions.

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Speaker 12: We had already had some expectations that would be watered

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Speaker 12: down from you know, comments that Powell had made and

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Speaker 12: also comments from bar in September, so some of that

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Speaker 12: was sort of in the stocks, but I think the

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Speaker 12: feeling is, you know, from our regulatory group that the

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Speaker 12: things could either get pushed further out or they could

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Speaker 12: be watered down even further. And so that's good for

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Speaker 12: the banks because their excess capital is something like five

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Speaker 12: to fifteen percent of their market caps. So definitely that

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Speaker 12: was something aiding a city group in Wells Fargo as

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Speaker 12: well as someone like Morgan, Stanley and Goldman, where even

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Speaker 12: with the water, even with the sort of lighter touch

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Speaker 12: in September, they were still going to have a deficit

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Speaker 12: in their capital.

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Speaker 9: So some positive news on that front.

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Speaker 12: Also, as you know, you know, Wells Fargo has had

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Speaker 12: this asset cap for a long time.

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Speaker 9: City Group.

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Speaker 12: There's been some concerns, especially around when they reported their results,

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Speaker 12: that they could face more scrutiny. So just a particular

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Speaker 12: easing I think also benefited those couple of banks. And

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Speaker 12: then there are some other things related to card and

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Speaker 12: consumer and finance as well. On the interest rate funds,

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Speaker 12: all these banks are positioned for higher rates, so we

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Speaker 12: know that we'll be watching the FED in terms of

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Speaker 12: short term rates, but I think in general that also

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Speaker 12: got a lift. And then finally from our viewpoint, the

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Speaker 12: big thing is that we see momentum fees and that's

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Speaker 12: been a huge boost to the earnings for these banks.

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Speaker 5: Just back to the Bunzel three endgame rules, the idea

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Speaker 5: is give me the dummies version. You had to set

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Speaker 5: aside more capital basically in case things went south, so

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Speaker 5: the financial institutions wouldn't ruin the economy, right, So that's

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Speaker 5: freed up. Does that now go back to shareholders? Is

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Speaker 5: that the idea?

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Speaker 12: That that is the idea, and so Boso three endgame rules. So,

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Speaker 12: as you know, Baso three is something that sort of

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Speaker 12: came after the financial crisis, and there's been many iterations.

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Speaker 12: Thus the reference to this last set of rules as endgame.

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Speaker 9: And basically what that.

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Speaker 12: Dictated was that as they measure their risk weighted assets,

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Speaker 12: there would be big increases in that and thus they'd

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Speaker 12: be having to hire, you know, hold more capital against that.

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Speaker 12: And so based on third quarter earnings and fourth quarter requirements,

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Speaker 12: their excess capital was five to fifteen percent of their

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Speaker 12: market cap. Under the BOSO three rules, that would turn

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Speaker 12: to deficits across the bank, so they would have to

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Speaker 12: find a way to increase their capital. There is a timeline,

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Speaker 12: so they probably would have done that through internal capital generation.

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Speaker 12: But to your point, they that would have been capital

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Speaker 12: that they could not return to shareholders.

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Speaker 5: Has the most capital to be returned to shareholders.

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Speaker 12: Well, based on the requirements today City Group, their excess

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Speaker 12: capital is something like fifteen percent of their market cap.

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Speaker 5: Okay, all right, and.

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Speaker 12: I would and I would point out also that you

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Speaker 12: know these banks have and so by the way, like

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Speaker 12: the banks do sort of target holding a buffer to

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Speaker 12: the requirement. So there's a little bit of that, but I.

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Speaker 9: Think you know, in general, it is the fact that

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Speaker 9: buybacks will likely go up.

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Speaker 12: These banks already have buy back programs in place so

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Speaker 12: they can execute on them.

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Speaker 9: But it's also the math.

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Speaker 12: If you have higher equity, your return on equity is

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Speaker 12: going to be lower, and that's how investors' value stock.

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Speaker 12: So there is definitely the higher buybacks, but also I

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Speaker 12: think it is the sentiment that is helping bank multiples.

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Speaker 12: This specific regulation, but also less regulation in general. I

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Speaker 12: didn't talk about with regard to regulation is less antitrust.

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Speaker 12: So that's good for M and A and that's really

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Speaker 12: why you saw Goldman and Morgan Stanley very the stocks

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Speaker 12: reacting to that.

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Speaker 2: Allison, thanks so much for joining us. Alison Williams, senior

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Speaker 2: analyst covering the global banks around the world for Bloomberg

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Speaker 2: Intelligency Space down in our Princeton office.

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Speaker 3: Again, the banks had a big, big.

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Speaker 2: Move higher yesterday that really got people's attention thinking that

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Speaker 2: they will be a better regulatory place under a Trump administration.

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00:42:39,520 --> 00:42:43,120
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00:42:46,760 --> 00:42:49,880
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